Empower your journey to financial freedom with a strategic debt repayment plan. Understand how to pave the way to a brighter future!
Have you ever felt like debt is a heavy weight on your shoulders? Whether you borrowed a little or a lot, dealing with loans can be really tough. And if you have multiple loans, it might seem like there is no way to escape. But guess what? There is always a way to make things better. You can take control of your money and create a plan to break free from debt. How, you ask? Well, by creating a debt repayment plan.
Yes, the journey would be difficult. But, remember you are doing it all for your future where debt would not hold you back from fulfilling your dreams and passions.
So, are you ready to begin the journey to a debt-free life? We know it’s a yes! So, let’s begin.
Why Having a Debt Repayment Plan is Important?
Firstly, having a debt repayment plan is important because it gives you a clear way to get control over your money and get rid of debt. Without a plan, debt can feel like a big problem that is hard to handle, and it can make you feel stressed and unsure about your finances. But with a good plan, you can take charge of your income, set goals you can reach, and figure out which debts to pay off first.
Plus, having a plan helps you see your progress as you work towards getting rid of debt. This repayment map will guide you and make you feel more confident about your financial decisions.
So, having a plan is like a secret weapon to help you get on track and feel better about your financial future.
How to Create a Debt Repayment Plan?
Assess Your Current Debt Situation
To start creating a strong plan to pay off your debts, you first should understand how many loans you have and how much interest you pay.
Grab a notepad or open an Excel sheet. Begin by making a list. Include things like credit card bills and the different loans you have taken, such as home, car, and personal loans. In the next column, write down the interest rate, the EMI amount (the amount you need to pay each month), and the total amount you still owe.
This helps you get a clear picture of what you owe and lets you choose which debts to focus on first.
Also, while you are on a journey to pay off your debts, it is important to steer clear of taking on any new loans. The goal is to break free from the cycle of debt and not pile on to more debt.
Prioritise Debts Wisely
The second thing to note here is that not all debts are equal. Some loans will cost you more in interest than others. This means you need to figure out which debts to focus on first.
So, there are two basic methods to select from.
Debt Avalanche Method
In this method, you tackle the biggest debt first. You start by paying off the debt with the highest interest rate. This way, you save more money in the long run because you are getting rid of the most expensive debt first and the smallest at the last.
Debt Snowball Method
This method is about winning small victories. You start by paying off the smallest debt, regardless of the interest rate. Once you finish paying that one, you move on to the next smallest debt. This method is great for motivation because you quickly see results.
In addition to considering the two methods mentioned above, it is a good idea to include the snowflake method alongside them. This can help you become debt-free sooner than your original plan.
Understanding the Snowflake Method
In the snowflake method, you have to pick small snowflakes and make a snowman. In other words, these snowflakes represent a small amount of money you earn from other sources like a performance bonus or an income from a side hustle. Instead of spending it all, you must use the money to pay off your debts.
So, whenever you have extra money, you pay it for your debt. Even though these amounts might not seem huge, they start adding up over time, just like how snowflakes come together to build a snowman.
By using the snowflake method, you gradually but consistently lower your debts. Moreover, if you combine this strategy with the avalanche or snowball, you will see a reduction in your debt quickly.
Find a Side Hustle
When you are surrounded by debt, it is always great to create secondary sources of income. By doing so, if something goes wrong with your first income source, you can always rely on the secondary source so that your EMIs don’t fall out of place for any reason.
Now, you don’t have to put in huge capital to set up a secondary source of income. You can simply start with freelancing, tutoring, or starting a small business. A side hustle can generate extra income, which you can direct towards debt payments. Channelling this additional income towards your debts can accelerate your journey to financial freedom.
Which Repayment Strategy is the Best For You?
It is up to you which method to use. If you are all about saving money on interest, go for the debt avalanche method. But the debt snowball might be better if you want quick wins to stay motivated. And don’t forget to add the snowflake method to whichever method you choose. Pick the one that matches your goals and your feelings about your debts. Remember, both methods lead you closer to a debt-free life!
To conclude, empowering yourself to take control of your debt is a transformative journey. By assessing your current debt situation, setting clear financial goals, prioritising debts, and selecting a suitable repayment strategy, you lay the foundation for a debt-free future.
Remember, becoming debt-free isn’t just about managing money—it’s about regaining control of your life and paving the way for a brighter financial future.
*The article is for information purposes only. This is not an investment advice.